MYTHS AND REALITIES; SOUTH AFRICA’S IP TIPS – WORLD BANK WORKSHOP 27 OCTOBER 2011

MYTH NO. 1 : SOUTH AFRICA IS UNDERGOING DEINDUSTRIALISATION THE DECLINE IN MANUFACTURING AS A SHARE OF GDP IS (A) EXPECTED (B) IS NOT A GENERAL PHENOMENON OF ALL SECTORS

SOUTH AFRICA INDUSTRY STRUCTURE IN RELATION TO GDP IS HIGH Below “Normal”At “”Above “” Non metallic mineral products Tobacco products Apparel and Footwear Textiles Electrical machinery and apparatus Machinery and equipment Medical, precision and optical instruments Printing and publishing Wood Products Rubber and plastic products Fabricated metal products Paper and paper products Motor vehicles Coke and refined petroleum Furniture and other manufactures nec Chemical and chemical product Basic metals Manufacturing Pattern:

SOUTH AFRICA PERFORMS POORLY IN LABOUR INTENSIVE SECTORS SA WELL BELOW “NORMAL”

MYTH NO. 2: IP IS THE ANSWER SECTORS ALREADY ENJOY: HIGH RATES OF PROTECTION SUBSTANTIAL SUPPORTS.

CONCLUSION: WAGE AND LABOUR MARKET REFORM FOCUS ON IP TAKES AWAY FROM THE FOCUS ON LABOUR MARKET RAISES A MUCH BROADER QUESTION: WHAT SHOULD THE OBJECTIVES OF IP BE? THE END OBJECTIVE OF ALL ECON. POLICIES IS GREATER OUTPUT AND EMPLOYMENT, BUT…

THE OBJECTIVES OF IP: SA AND THE NICS INDUSTRIAL POLICY METRICS ARE OUTPUT, EMPLOYMENT AND EXPORTS. THE IPAP (AND THE GROWTH PATH) ARE EMPLOYMENT

EXAMPLES OF HOW THIS CAN LEAD TO WRONG POLICIES FIRST QUESTION FOR IP – WHAT ARE THE BINDING CONSTRAINTS. WHAT IS THERE THAT GOVT. CAN DO TO IMMEDIATELY RAISE OUTPUT AND EXPORTS?

THE INFRASTRUCTURE PROGRAMME: LOCAL PROCUREMENT HIGHER COSTS; DELAYS; RECONFIGURATION. TIGHTENING THE BINDING CONSTRAINTS A TAX ON BUSINESS IN GENERAL. AND IT WILL NOT WORK!!

CHEAP FINANCE FOR LABOUR INTENSIVE ACTIVITIES LOWERING COST OF K ENCOURAGES LABOUR SAVING INVESTMENTS

TARIFFS RAISING TARIFFS IN PURSUIT OF EMPLOYMENT TARIFFS ARE A TAX ON EXPORTERS

MANY IP INTERVENTIONS ARE K INTENSIVE AUTOS DEFENCE NUCLEAR. INCONSISTENT EVEN IN ITS OWN TERMS

HORSES FOR COURSES IP WILL MAKE A POSITIVE CONTRIBUTION TO EMPLOYMENT IF IT RAISES THE RATE OF INVESTMENT AND PRODUCTIVITY AND INCREASES EXPORTS. THE GROWTH IN EMPLOYMENT WILL BE LARGELY OCCUR IN THE NON-TRADED SERVICES SECTOR

POLICIES TO CREATE EMPLOYMENT EMPLOYMENT POLICY – LABOUR MARKET REFORM PROMSISING JOBS VIA THE IPAP AND THE GROWTH PATH OBFUSCATES THE NEED FOR THIS DISCUSSION